Awareness

Americans appear to be more concerned with current spending benefits and give little thought to future deficit issues. Since the current deficit burden remains low, citizens tend to ignore the issue and thereby exacerbate the future effects of the problem. Thus, a heightened awareness of the issue and its ensuing repercussions is the first step toward reducing the deficit. We propose a governmental publication of generational accounts, which we believe will help enlighten the public of the serious nature of the structural deficit problem and in turn, reduce the deficit effect on our generation.

If the electorate internalizes its newfound awareness and demands prioritizing the budget, their elected officials will follow. As constituent demand for deficit reform increases, Congress will experience an increase in ideas and proposals. Competition among initiatives will occur, and the best ideas from each proposal will combine to create the most socially beneficial program. An informed society will serve as the catalyst for a consensual and legitimate deficit reform. In addition to their constituents, politicians may also initiate deficit reform. As representatives of their electorate, their responsibility is to inform the American public of the serious economic repercussions of a long-term federal deficit. Project 2030 supports the election of any leader who makes the budget his first priority as this will limit the future burden on our generation.

Additional Revenue

Many economists argue that the deficit problem centers on excessive entitlement spending. However, Project 2030 believes America faces a medium term revenue problem in addition to long-run spending problems. Currently, the revenues collected are significantly below historical norms while spending levels are approximately normal. Because we believe the role of government has not significantly changed over the past couple of decades, taxes should be increased to deal with the current deficit. With the coming entitlement expenses, it is important that the federal government enter the approaching demographic storm in the best fiscal shape possible. Although politically unpopular, we propose that the government attain needed additional revenue through tax increases. We support the withdrawal of the 2000 tax cuts and a restoration of the pre-2000 tax rates. Policy makers must be careful not to institute such proposals in a manner that will significantly hinder short-run and long-run economic growth. Project 2030 therefore supports an initiative that gradually restores taxes over the next ten years to previous rates.

Revenue Protection

In the past when government raised taxes for entitlement programs, surpluses were often spent on unrelated agendas. This transfer caused two problems. First, the surplus revenue used to fund other programs made the deficit appear smaller than if the money were borrowed or obtained differently. Second, the surpluses no longer helped relieve the pressures on entitlement programs in the years to come. Project 2030 proposes Congress mandate that any program surplus be used to reduce the current deficit and not go to spending increases on other government programs.

Reduced Benefits

Reducing benefits offers another solution to deficit reduction. No politician or constituent favors reduced benefits, but reduction is a necessity everyone must accept. As the number or workers who fund entitlement payments decreases, the nation as a whole must sacrifice benefits to ensure available coverage to all. The reduction need not be large; a small reduction in benefits per recipient will significantly relieve pressure on the system in the coming years, contributing to its long-term sustainability. Entitlements will therefore be distributed in a manner that is equitable among generations. Reduced benefits also create another positive externality. If people realize they will receive less benefits, they may work for a greater portion of their lives. This in turn reduces the number of years benefits will need to be paid out and increases the number of years one pays into the system as a taxpayer. We also support raising the retirement age to offset America’s extended life expectancies. Paying benefits over extended years puts too much of a strain on our shrinking revenues; a higher retirement age helps to relieve such strains.

Efficient Entitlements and Reduced Cost

In the long run, the entitlement programs of Medicare and Medicaid pose the greatest threat to the federal deficit. In previous years, the outlays for programs grew at a pace of two and a half times the rate of GDP. If the programs continue to grow at this rapid pace, the cost of health care will experience upward pressure, and the possibility of providing healthcare to all citizens will be no longer be feasible at its current share of GDP. Thus, it is necessary to slow the growth of healthcare costs by making the program as a whole more efficient in all areas. A standardized medical record system must be established. If insurers and doctors possess uniform documents, transition costs between doctors and patients will decrease. A portion of the medical record problem can be solved through increased incorporation of information technology into the medical field. We propose an established data archive that will record the effects of all treatments which will create incentives for best practices. This will raise the level of efficient and effective healthcare treatment. An electronic database also enables consumers to evaluate insurance companies. This would create more competition among insurance providers and drive down costs. The incorporation of informational technology into the healthcare sector may increase health care efficiency up to twenty percent. We believe informational technology will not only provide this one-time benefit, but will continue to expand, lowering future healthcare costs.

Restructured Economy

Fundamentally, America is changing, and we must accept the fact the American economy is going to restructure. As a larger portion of the American population ages, it will demand different services, and the American economy will adapt to provide those services. However, a larger portion of the American economy will be devoted to provide the services that the elderly desire. This is neither a good nor a bad thing, but rather an economic fact regarding the future structure of the American economy. Project 2030 believes that the American economy is resilient enough to handle the economic restructuring of an aging population. In the words of Dr. Rivlin, “to say that we can’t handle an aging population is ridiculous.”[i]

As the generation with the largest stake in the future deficit, we believe heightened public awareness is the most crucial component to stimulate policy changes. The initiation of our proposed policies will put us on the right track to reducing the federal deficit. By alerting the public of the looming dangers, Project 2030 aims to motivate our generation to take responsibility for tackling our deficit problem.

^[i] Rivlin, Alice. Interview by Colorado College Students in EC 390. Recorded 10 March 2005.